Gold prices were down 4% in 2021, but an increasingly bullish sentiment could be brewing, which can help propel the Global X Gold Explorers ETF (GOEX).
With inflation reaching 7% in December 2021, gold prices could also get additional tailwinds. Should the Federal Reserve be less hawkish than the capital markets planned, that could also push gold higher.
“We could not be more bullish [on gold] over the next six months or so, as the U.S. economy begins to decelerate,” said Michael Armbruster, managing partner at Altavest in a MarketWatch article.
Market volatility has been racking the equities market amid fears of rising inflation and the constant cloud of the pandemic looming over. Additionally, rising yields in the bond market are also paving the way for investors to head into real assets like gold.
“Gold’s price action is especially bullish given that Treasury yields have been on trending higher,” Ambruster said. “We think that Treasury yields are likely to peak soon and, if we are correct, that could turbo-charge gold prices to $2,000 or beyond.”
As mentioned, market volatility could also drive more investors to gold as economic growth prospects dampen. In addition, corporate earnings prospects could get gloomier, injecting more anxiety into the capital markets.
“The sell-off appears to be driven by the earnings stories that are coming out,” said Anu Gaggar, global investment strategist for Commonwealth Financial Network. “The guidance seems to be less upbeat. When they start looking into 2022, they talk about growth slowing.”
“Higher volatility and a slump in equity markets has helped the precious metal to cap its losses to some extent,” wrote Naeem Aslam, chief market analyst at AvaTrade.
Strength in Gold Exploration and Development
If gold prices start heading towards the upside, ancillary services could also benefit from the price increases. That means an increase in gold exploration and development.
GOEX seeks to provide investment results that correspond generally to the price and yield performance of the Solactive Global Gold Explorers & Developers Total Return Index. The index is a free float-adjusted, liquidity-tested, and market capitalization-weighted index that is designed to measure broad-based equity market performance of global companies involved in gold exploration.
GOEX also gives investors diversified exposure to ancillary gold services internationally. Looking at its country breakdown (as of December 31, 2021), Canada comprises the largest exposure (54%), with Australia (19%) and Britain (10%) rounding out the top three.
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